Qatar Airways’ domestic plan: India home to foreign carriers, says Government; local players resent

While the govt says “we welcome investment from Qatar or from any one else”, local airlines say that permitting 100% FDI in domestic market does not bring in much capital investments as most planes in the sector are leased and departure & landing slots are assets

While domestic carriers oppose such a move from a commercial standpoint, other countries do not allow airlines to be fully owned by foreigners as they see it as a security threat. Ilustration: C R Sasikumar

Qatar Airways’ plans to set up a domestic airline in India and the government’s willingness to permit a local carrier that is fully-owned by foreigners will be a new experiment among the major aviation markets — one that could present its own set of challenges to local players and the security agencies. Top civil aviation ministry officials have welcomed Qatar Airways’ plan to tie up with Qatar Investment Authority (QIA) to set up an airline in India to serve local market — less than a year after Prime Minister Narendra Modi liberalised the foreign direct investment policy for the aviation sector, permitting foreign investment up to 100 per cent in Indian carriers, comprising maximum 49 per cent stake for a foreign airline and another 51 per cent by a foreign investor.

This also marked a key shift in India’s foreign direct investment (FDI) policy pertaining to airlines, which, like other countries, had remained guarded against allowing foreign airlines controlling local carriers for decades. Since 2012, the FDI policy in the aviation sector has been liberalised — which enabled Abu Dhabi-based Etihad Airways to buy a minority stake in Jet Airways (India) Ltd. It also allowed Tata Sons to start two separate airlines in joint venture with foreign carriers — a full-service airline with Singapore Airlines named Vistara and a low-cost airline with Malaysia’s AirAsia, called AirAsia India.

Leading Indian airlines have vehemently opposed the government’s policy permitting a local airline to be fully owned by foreigners, arguing that no other country allows a similar dispensation. World’s largest aviation market, the US, for instance, restricts foreign ownership in domestic carriers to 25 per cent. Elsewhere, in the European Union and South Korea, for example, the cap is set at 49 per cent.

While domestic carriers oppose such a move from a commercial standpoint, other countries do not allow airlines to be fully owned by foreigners as they see it as a security threat. “Apart from presenting national security issues, the easiest way to launder money is to start an airline. So there needs to be checks and balances in giving approval to a foreign-owned domestic airline,” said an airline industry executive.

The Federation of Indian Airlines, comprising Jet Airways, SpiceJet, IndiGo and Go Air, has even pressed for changes in the FDI policy. They argue that permitting 100 per cent foreign ownership in domestic market does not bring in much capital investments due to the nature of the sector where most planes are leased and departure and landing slots are the assets.

“No country in the world allows 100 per cent foreign airline in their local markets. India is the only country that allows a domestic airline to be fully owned by foreigners. But it’s a positive change,” said Mark Martin, founder and chief executive officer of aviation consultancy firm Martin Consulting.

He said Qatar Airways’ plans to start a local airline will be positive for India, as it will expand the local market and bring in jobs and investments. Growing at over 20 per cent annually, India’s domestic market — now the third largest in the world with over 10 crore passengers in the previous year — presents lucrative business opportunity for the foreign carriers.

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The government sees an open foreign investment regime in the airline sector as benefiting the passengers as well as the sector — just as has been the case in the banking or the pharmaceuticals sectors. “We have read the media reports about Qatar’s strategy and I have met the QIA (Qatar Investment Authority) as well as the Qatar Airways people and they have expressed a great deal of interest in setting up a domestic airline in India and we welcome that,” Minister of State for Civil Aviation Jayant Sinha said at a CII event last Friday.

“As far as our FDI regime is concerned in aviation, it is among the most open in the world … so we have a very open and liberal FDI policy and with respect to FDI the policy is that 49 per cent can be owned by a foreign carrier, 51 per cent has to be owned by FIIs. So, in that sense, you can have a 100 per cent foreign-owned carrier, and I must remind you that many of our banks are 74-75 per cent owned by foreign institutions as well, so across our economy, in sector after sector, we have really liberalised the FDI regime, and really made sure that our economy is an open market-driven economy, and we have gone through and done that in aviation also. So, we welcome investment from Qatar or from anyone else, for example, Singapore as well.” Sinha said.

Apart from airlines, the government allows foreigners to own 100 per cent equity in airports, non-scheduled air transport services, helicopter services and ground-handling services.

However, any plans to permit 100 per cent foreign ownership of a local airline would require the government to amend the existing substantial ownership and effective control (SOEC) regulations which mandate that any Indian airline remains with Indian nationals. Government rules require that the chairman and at least two-thirds of the directors of a local airline should be Indian nationals. These rules, which now clash with the relaxation in the FDI policy in aviation sector, mandate that a domestic carrier should be substantially owned by Indians, with Indian citizens and/or Indian companies owning more than 50 per cent equity stake in the airline.

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Non-resident Indians are allowed to have 100 per cent stake in a local carrier. Officials said the civil aviation ministry, in consultation with the Department of Industrial Policy and Promotion, are close to finalising the changes these rules which will pave the way for foreign ownership in local airlines.